Revenue v. Income Tax Appellate Tribunal

Judgment

1. Whether on the facts and in the circumstances of the case, the appellant was justified and correct in law in assuming jurisdiction u/s 263 of the Act an d in passing the order dated 8-11-2006 u/s 263 of the Act setting aside the asse ssment order with the further direction to reframe the same in terms of the said order ?

2. Whether on the facts and in the circumstances of the case, the tribunal was justified and correct in law in cancelling the order passed by the appellant u/s 263 of the Act, 1961 ?

When the appeal came up for hearing, reliance was placed by the Revenue on the judgment of this Court in Commissioner of Income-Tax Vs. Daga Entrade P. Ltd. (2010) 327 ITR 467 (Gauhati) holding that jurisdiction under Section 263 wa s validly exercised when the order revised was erroneous and prejudicial to the interest of the revenue. The assessee submitted that revisional jurisdiction co uld be exercised only for jurisdictional error as held in Rajendra Singh Vs. Sup erintendent of Taxes, 1979 STC 10. The Bench, hearing the appeal, was of the vie w that the view taken in Daga Entrade was in conflict with the earlier judgment of this Court in Rajendra Singh. Accordingly, the matter was directed to be plac ed before larger Bench. The larger Bench, vide judgment dated 7.2.2012 reiterate d the view taken in Daga Entrade explaining the earlier view to the effect that expression (cid:28)jurisdictional error (cid:29) was not intended to exclude the order which ma y be erroneous and covered by the scope of revisional jurisdiction under Section 263. An order passed by ignoring relevant material, on wrong assumption of fact s, incorrect application of law or by non-application of mind could certainly be held to be erroneous and suffering from error of jurisdiction, so as to be cove red within the scope of revisional jurisdiction under Section 263 of the Act. Th e matter was directed to be placed before the Division Bench for decision on mer it. We have heard learned counsel for the assesse. Learned counsel for the r evenue is unable to assist the Court as he says that he is not ready. In the present case, the Commissioner has clearly concluded that the ord er was erroneous and prejudicial to the interest of revenue and called for exerc ise of revisional jurisdiction. Valid reasons for exercise of jurisdiction have been given. No doubt, mere different opinion was not enough for an order being t ermed as ’erroneous’ but the finding of the Commissioner shows that the order of AO suffered from non application of mind. Distinction in cases where the AO tak es a view, after applying mind as per settled norms and cases where settled norm s are ignored and assessment is made is well known. While in former, revisional jurisdiction may not be exercised, in later it can certainly be exercised. Prese nt case clearly falls in second category. Whether or not exercise of revisional jurisdiction was called for is a question of law, on a given fact situation. Whe ther in the facts of the present case, exercise of jurisdiction was permissible is the substantial question of law for our consideration. Before proceeding furt her, we may refer to the findings of the three authorities. The same are :- The assessee purchased 320 shares of Goyal Achal Sampatti Vikas and Niyo Assessing Officer :- (cid:28) jan Nigam Limited from one Janaki Devi, through Rahendra Nahata, Member, Gauhati Stock Exchange Limited on 21.4.2000 for Rs.19,536/-. The same were sold by the assessee on 2.5.2001 through Pannalal Bhansali, Member, Gauhati Stock Exchange L td. for Rs.6,36,640/- giving rise to Long Term Capital Gain of Rs.6,16,142/- aft er indexing benefit. The assessee has claimed exemption for the entire Capital G ain u/s/ 54F of the I.T. Act, 1961 as having been invested for the purchase of R esidential Flat within one year before or two years after the date of accrual of Long Term Capital Gain on shares. The assessee has furnished evidence for payme nt of Rs.5,95,000/- to legend Apartments on different dates during the permissib le time limit. Proof of payment of Rs.1,56,205/- towards payment made for materi al purchased, for furnishing the flat could not be furnished. The assessee does not own any other house on the date of accrual of Long Term Capital Gain. The as sessee has fulfilled all the condition for claiming exemption u/s 54F except tha t he did not utilize entire consideration from transfer of shares for purchase o f flat and as such, the claim is accepted partially in terms of section 54F. (cid:29) Commissioner of Income Tax (cid:28)7. In my view, the AO should have enquired about the existence of the compan y and should have written letters at the address given in the share certificates for verification of the assessee’s claim. He should have obtained the annual ac counts of the company as on 31.03.2000 and 31.03.2001 to satisfy himself whether the commercial activities of the company justified such a jump in the price of shares. He could have obtained the price quotations of the shares on a few dates during the check-period to examine the reasonableness of the jump. Since the sh ares were purchased in cash, it was necessary to obtain the details of the immed iately previous holder and find out whether she was a genuinely existing person. The date-wise cash-flow statement of the assessee in the year of acquisition sh ould also have been sctutinized. It was necessary to examine the books of Shri R ajendra Nahata to verify the cash transactions. In fact, both Smt Janki Devi and Shri Rajendra Nahata should have been personally examined by the A.O. The A.O. should have also examined Shri Pannalal Bhansali through whom the shares were s old. His books of account, particularly statements of the bank account from whic h Shri Pannalal Bhansali drew cheques in favour of the assessee, should have bee n obtained and thoroughly scrutinized. It was also necessary to summon the ultim ate purchaser(s) of the shares along with the share certificates and examine him /them to find out if the considerations were paid in cash or by cheque, and whet her the sources from which such payments were made were evidenced. Since these n ecessary checks and balances were not carried out by the AO, the assessment orde r was rendered erroneous and prejudicial to the interest of the revenue. The ord er, therefore, requires to be revised. (cid:29) Income-Tax Appellate Tribunal, Guwahati (cid:28)5. We have given our careful consideration to the rival submissions made be fore us and various orders of the Tax Authorities. We have also considered the c ase law relied upon by the Ld. Counsel for the assessee. From the perusal of the assessment order framed u/s. 143(3), we find that the A.O. had made detailed en quiries in respect of share purchase and sale apart from receipt and payment rel ating to such share transaction. The A.O. during the course of assessment procee ding has produced the photocopy of share certificates and bank statement from th e assessee along with confirmation from broker regarding such share transaction. The A.O. has also verified the claim of the assessee in respect of deduction u/ s. 54F by perusing the documents like copy of agreement for flat, evidence of pa yment to M/s. Legand Apartments, proof of payment for material purchased etc. It is, therefore, evident that the A.O. while completing the assessment u/s. 143(3 ) has thoroughly examined the share transactions of the assessee and the claim f or deduction u/s.54F which are sought to be revised by the CIT by invoking the p rovisions of section 263 which is, in our considered opinion, not permissible un der the Act as for invoking such revisionery power there must exist two circumst ances i.e. (1) the order must be erroneous and (2) because of being an erroneous order the order must have become prejudicial to the interest of Revenue. We als o find that the Hon’ble Gauhati High Court in the case of B & A Plantation and I ndustries Vs. CIT 290 ITR 395 held that it was not open to the CIT to consider t he order passed by the A.O. as erroneous because in his view certain amount of d eduction should have been disallowed, particularly when the impugned order of th e CIT does not show how the order passed by the A.O. can be said to be an order passed without jurisdiction. (cid:29) It is clear from the above, that interference by the CIT was not merely on the ground that a different view could be taken but on the ground that there was failure to follow established norms and there being non application of mind. The reasons given by the Commissioner including the one that there was unusual jump of prices from Rs.6/- per share to Rs.200/- per share within a span of 13 m onths which could not be held to be explained without examining the sellers and buyers and making further enquiries is not shown to be irrelevance. The Tribunal committed error of law in ignoring this aspect. In the facts and circumstances of the case, the Tribunal was not justified in holding that the exercise of juri sdiction by the revisional authority was not permissible under Section 263 of th e Act. Learned counsel for the assesse submitted that the question of perversit y having not being raised, this Court must accept the finding of the Tribunal to be conclusive. He has also relied upon the judgment of the Delhi High Court in Commissioner of Income-Tax vs. Hindustan Marketing and Advertising Co. Ltd. (201 2) 341 ITR 180(Delhi) for submitting that revisional jurisdiction could not be e xercised on the ground that the Assessing Officer should have gone deeper into t he matter. We are unable to accept this submission. Jurisdiction under Section 263 of the Act in the present case has not been exercised merely on the ground that the Assessing Officer should have gone deeper into the matter but by pointing ou t that the AO had failed to apply his mind in allowing the benefit under Section 54 F of the Act by accepting the genuineness of the capital gain. The finding o f the Tribunal on the issue whether case for exercise of revisional jurisdiction was made out, cannot, in the circumstances, be held to be a pure finding of fac t. Substantial questions of law raised in the appeal do arise and have to be ans wered in favour of the revenue.